The Netherlands is on the verge of implementing a significant tax reform that could trigger capital flight, particularly in the realms of stocks and cryptocurrencies. Starting in 2028, the Dutch government plans to tax unrealized gains on assets, a move that has sparked intense debate and raised concerns among investors.
The new tax system, known as "Wet werkelijk rendement Box 3," will require investors to pay taxes annually based on the change in the value of their assets, regardless of whether they have actually sold them. This means that even if an investor's Bitcoin, stocks, bonds or other investments increase in value on paper, they will be taxed on that appreciation. The projected tax rate is set at 36% of the actual return.
This reform is a departure from the traditional approach, where taxes are typically levied only when an asset is sold and the gain is realized. The Dutch government argues that the new system is fairer and more accurate, as it taxes actual returns rather than assumed returns. This shift comes after a court ruling that deemed the previous "Box 3" system unfair. The old system taxed investors based on assumed returns, which often did not reflect real performance.
Despite the government's rationale, the proposed tax on unrealized gains has faced strong criticism. One major concern is that investors may be forced to sell assets to cover their tax liabilities, even if they do not want to. This could be particularly problematic for volatile assets like cryptocurrencies, where values can fluctuate significantly. Critics also warn that the new tax regime, combined with data sharing initiatives like DAC8, could exacerbate this issue.
The potential for capital flight is another significant worry. Investors, especially those holding large amounts of crypto or stocks, may choose to relocate to countries with more favorable tax policies. This could lead to a significant outflow of capital from the Netherlands, negatively impacting the Dutch economy.
While real estate and certain start-up investments are excluded from the annual unrealized gain taxation and will continue to be taxed only upon sale, the reform will tax most liquid financial assets based on actual annual value changes rather than assumed returns. Unrealized losses may be carried forward to offset future gains, and a proposed €1,800 tax-free threshold per person would apply to total annual results, according to the framework.
Despite acknowledging flaws in the proposed legislation, most parliament members support it, citing that delaying its implementation could result in a loss of 2.3 billion euros for the government each year. The Dutch House of Representatives is currently debating the tax reform bill, and a parliamentary majority is expected to approve the measure. If enacted, the law would require investors to pay taxes annually on the appreciation in value of their holdings in stocks, bonds, and cryptocurrencies, regardless of whether they have sold them.
The Netherlands' move to tax unrealized gains places it at the forefront of a global debate on asset taxation. Currently, most major economies, including the United States, do not tax unrealized gains. The Dutch experiment will be closely watched by other countries as they grapple with the challenges of taxing digital assets and wealth inequality.
